On February 6, 2019, the Consumer Financial Protection Bureau took an important and courageous step that will allow banks and other responsible lenders to again help consumers meet their short-term small-dollar needs. The proposed rule allows lenders to re-enter the market with quality products and services that offer consumers better regulated, priced, and structured products.
Each year, millions of Americans rely on nearly $90 billion in small-dollar loans, typically between $300 and $5,000. This kind of credit helps families cope with emergencies and assists small businesses with meeting short-term expenses. When regulatory actions took banks out of the market, the demand did not go away. Other lenders stepped in. The shrinking supply and steady demand drove up prices and promoted much less favorable terms.
By reestablishing a framework of rules that allow responsible lenders to compete, the market can work better for everyone. When banks offer products with reasonable pricing and repayment terms, consumers benefit from other services that banks regularly provide, such as financial education and credit reporting.
Banks may not be able to serve all of this large market, but they can reach a significant portion of it and bring additional options and more competition to the marketplace while delivering safe, fair, and affordable products that promote the long-term financial goals of their customers.